An Introduction to Historic Tax Credits

Many developers struggle to find the resources to complete building projects. One potential avenue for developers that is often overlooked is the use of historic tax credits. The historic tax credit programs are a unique way for developers to obtain tax credits while simultaneously preserving historic resources for future generations.

These historic tax credits programs are available at the Virginia state level as well as the federal level. By using these historic tax credits, a developer can lower the total amount of tax owed at the federal and state level. In Virginia, the Virginia Department of Historic Resources administers the state and federal historic tax credit programs.

The underlying goal behind the two programs is the re-use and revitalization of historic properties which have fallen into disuse or disrepair. To qualify under the programs, the development must be for the purpose of rehabilitating an existing qualifying historic building.

Under the Federal Historic Preservation Tax Incentives program, a developer can obtain a tax credit equal to 20% of the qualified rehabilitation expenses incurred during rehabilitation of a certified historic structure. The owner must hold the renovated building for at least five years after the rehabilitation or the federal government can “recapture,” or take back, the federal historic tax credits. An additional credit of 25% is available under the Virginia state program. If the developer is unable to use the credits, under certain circumstances and with the right structure, a third party investor can invest cash in the developer’s entity and receive the credits through distributions.

Federal and state tax credits provide a unique opportunity for developers to revitalize historic buildings, help support existing neighborhoods, and obtain tax credits that lower the total amount of tax owed. There are a number of other criteria that a developer must fulfill in order to take advantage of these unique programs. Anyone interested in these programs must have their situation evaluated individually and should consult with an attorney and financial advisor knowledgeable about historic tax credits. For more information, contact Shane Frick.